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A total of 133 line items of assets in the Zohar I CLO which was formerly managed by Patriarch Partners are set to be auctioned this Friday, Dec. 9 at noon EDT, according to a notice from the trustee, U.S. Bank.

The auction is expected to shed some light on the value of assets on privately held issuers that in some instances were among the former collateral manager Patriarch’s many portfolio companies. The internal valuation methods employed by Patriarch on its three Zohar CLOs had previously garnered the attention from the Securities and Exchange Commission (SEC), which in March 2015 brought fraud charges against the manager and Patriarch’s CEO and founder, Lynn Tilton.

The Zohar I CLO had previously defaulted on Nov. 22, 2015, and Alvarez & Marsal Zohar Management took over as collateral manager on all three of the Zohar CLOs in February from Patriarch.

The securities to be auctioned include the term loans and equity interests in a number of companies that are privately owned, in some instances by Patriarch Partners themselves such as MD Helicopters, Inc.; Duro Textiles, LLC; and Xinhua Sports & Entertainment.

Interested investors can have the opportunity to meet with the management of the companies for sale subject to a confidentiality agreement by contacting the liquidation agent, Duff & Phelps.

U.S. Bank notes that there is still ongoing litigation across different courts creating uncertainty over the actual rights or transferability of the assets for sale. Those cases include Patriarch Partners Agency Services LLC v. Zohar CDO 2003-1 in the Southern District Court of New York. Patriarch Partners is claiming in its suit that under the governing documents, Patriarch’s removal as an administrative agent was invalid and therefore the sale of assets cannot be conducted.

Potential investors must also be wary that they may not have the full purview of the collateral in the Zohar I CLO. Alvarez & Marsal as collateral manager is also in litigation against Patriarch in the Delaware Court of Chancery in Zohar CDO 2003-1 v. Patriarch Partners LLC, claiming that Patriarch is still withholding critical documents providing more details about the holdings of the Zohar CLOs after it resigned as collateral manager on all of them.

Patriarch Partners also filed for an appeal on Nov. 28 to the Supreme Court of Delaware arguing that the trustee, U.S. Bank, has no right to transfer the equity interests of a number of private companies in the Zohar CLOs.

Citi today priced a $711.3 million CLO for KKR Financial Advisors II LLC, according to market sources. This is the manager’s third U.S. CLO of the year, which was upsized from $509.05 million originally.

An affiliate of the manager is expected to retain a majority of the subordinated notes, according to a presale report from Fitch Ratings analysts.

Pricing details are as follows:

Up to 60% of the loans in the portfolio can be covenant-lite, according to Fitch.

The transaction will close on Dec. 15 with the non-call period running until Jan. 20, 2019 and the reinvestment period until Jan. 20, 2021. The legal final maturity is on Jan. 20, 2029.

Year-to-date issuance is now $60.44 billion from 132 transactions, according to LCD data. November issuance is now $5.94 billion from 12 CLOs. — Andrew Park

Demand from loan investors overwhelmed supply for the fourth consecutive month in October as cash poured into funds and ETFs while CLO issuance matched its impressive September total.
By the numbers, demand topped supply by $6 billion in October, according to LCD.

While that’s down from $9 billion in September and from the whopping $12 billion in August (the most since June 2015), it roughly matches the $6.5 billion surplus in July. All told, demand has swamped supply by an average of $8.4 billion over the past four months.

The usual suspects were at work.

Inflows to U.S. loan funds and ETFs totaled a net $1.65 billion last month, the most since March 2014, according to Lipper, as investors kept one eye on the roller-coaster U.S. electoral process and the other on interest rates, amid firming expectations of a Fed hike in December.

Another factor on the demand side: CLOs once again had a good month, with $8.41 billion in new vehicles in October, the most since June 2015, and just topping the healthy September figure. – Tim Cross

U.S. CLO issuance topped $8 billion in October – the second straight month it’s done so – bringing YTD issuance to $55 billion, according to LCD. The $8.4 billion issued last month is the most since the $13.1 billion in June 2015.

The relative surge in CLOs – the dominant investor in the $866 billion U.S. leveraged loan market – comes as investors have turned to loans of late, in light of slim yields on offer in other markets and in expectation of a December rate hike.

The spread on loans, of course, floats according to LIBOR, meaning the asset class offers interest rate protection, compared to fixed-income markets, such as junk bonds. – Tim Cross

The U.S. leveraged loan market continued to favor issuers in September, with demand for paper topping supply by $9.1 billion, according to LCD. While that’s down from the whopping $12.1 billion imbalance in August it’s up from a still-hefty $6.5 billion in July.

As a result of this three-month technical tilt, the September loan market was set firmly in overdrive, leading to outsized activity across many corners of the asset class, including institutional issuance (which hit a record high), high-yielding recap/dividend deals (the $6.9 billion in September was the most since July 2015), and even CLOs, a crucial leveraged loan investor constituency that has been largely dormant for much of 2016.

Why the supply/demand imbalance? Investors hungry for yield – and paper – have been pouring cash into U.S. loan funds, and CLO issuance had its busiest month of the year, as that market looks to price deals before new regulations hit at year-end. – Tim Cross

Citi today priced a $505.5 million middle market CLO for NewStar Financial, according to market sources. This is the manager’s second middle market CLO of the year.

The transaction is structured to be compliant with risk retention in Europe, with the manager retaining a horizontal slice.

Pricing details are as follows, with the CLO upsized from its originally marketed size of $405.2 million:

The transaction will close on November 29 with the non-call period running until October 25, 2018, and reinvestment period ending on October 25, 2020. A weighted average life (WAL) test will also end on November 29, 2024. The legal final maturity is October 25, 2028.

Year-to-date issuance is now $49.71 billion from 110 transactions, according to LCD data. October issuance is now $3.63 billion from seven CLOs. — Andrew Park

Morgan Stanley today priced an upsized $655.5 million CLO managed by THL Credit Senior Loan Strategies, according to market sources. This is the manager’s second CLO of the year.

The transaction is structured with the intent to comply with U.S. risk retention with a majority-owned affiliate (MOA) of the manager retaining a 5% vertical slice, according to analysts at Fitch Ratings.

Pricing details are as follows:

Up to 60% of the loans in the portfolio can be covenant-lite, according to Fitch.

The transaction will settle on Nov. 1 with a non-call period running for two years after the settlement and a reinvestment period for four years following the close.

Year-to-date issuance is now $44.53 billion from 100 transactions, according to LCD data. September issuance is now $6.69 billion from 13 CLOs. — Andrew Park

Issuance of U.S. collateralized loan obligation vehicles in August clocked in at $5.86 billion, in line with the $5.76 billion during the previous month, according to LCD, an offering of S&G Global Market Intelligence.

Year-to-date, CLO issuance totals $37.84 billion, down noticeably from the $73.3 billion at this point last year and from the $85.7 billion at this point in 2014 (there was a record $124 billion in issuance that year).

CLOs, of course, are a major source of leveraged loan demand. CLO issuance has declined in recent months as stricter capital requirements are set to take effect at year-end. (You can read more about how CLOs work here.) – Staff reports